Tijuana, the center of one of Mexico’s aerospace clusters, will host a forum in March to bring together aircraft manufacturers and suppliers of the parts and components they need.  The event will feature a conference series as well as one-on-one matchmaking meetings.  Full information and registration can be found here:

http://www.sedeti.tijuana.gob.mx/aerospace_2010.asp

• Automotive:  Nissan and Volkswagen have announced plans to begin production on new models in Mexico this year, expanding current production.  Nissan will build a new compact model at its Aguascalientes plant, in addition to adding production of its new Micra model also at the Aguascalientes location.  Volkswagen will launch production of a mid-size sedan as well as new models of the Beetle and Jetta at its Puebla facility.
• Electronics: Electronics industry leaders Samina-SCI and Hewlett Packard have announced plans to expand operations this year in Jalisco state, site of Mexico’s leading electronics cluster.  Sanmina projects investment of US$10 million in new machinery and equipment for manufacturing, and Hewlett Packard is investing US$5 million in infrastructure upgrades to expand staff at its Center of Excellence in Guadalajara.
• Manufacturing: Danish cleaning equipment manufacturer Nilfisk opened a US$10 million facility in the central state of Queretaro.  The new plant will produce industrial cleaning machines.
• Airports: Airport operator Grupo Aeroportuario del Pacifico announced planned investment of approximately US$42 million for this year in infrastructure upgrades.  Of the group’s 12 airports in Mexico, those at Guadalajara and Los Cabos are slated to receive the largest share of the upgrade investment.
• Electrics: French electric equipment and process control component manufacturer Schneider Electric inaugurated a new Technology Innovation Center in the north eastern industrial city of Monterrey.  The new center, which will simulate various applications for Schneider equipment such as industrial automation, critical power and energy efficiency, joins the company’s existing facilities in Monterrey and Mexico City.
• Railroad: Mexico’s cargo railroad operators have announced investment plans totaling over US$325 million for 2010.  Operators such as Kansas City Southern de Mexico, Ferromex, Ferrosur, Ferrovalle and Ferroistmo plan to boost spending this year in areas such as maintenance, infrastructure development and expansion, urban facilities and new technology, among others.
• Automotive: Ford de Mexico announced joint investment together with its suppliers of US$3.1 billion to produce the new model Fiesta at Ford’s Cuautitlan plant outside Mexico City.  Production of the new model is slated to begin sometime around mid-2010.
• Renewable energy: The Mexican government’s Shared Risk Fund (Firco) plans an aggressive program of rural renewable energy infrastructure installation to be financed with support from the World Bank and the Global Environment Fund.  The Sustainable Rural Development Program includes plans to acquire and install 500 thermal solar systems, 300 biodigesters and 100 photovoltaic energy systems, in addition to carrying out 180 analyses of agricultural energy efficiency by 2012.

Throughout the early and mid-‘00s, in the course of participating in export promotion events in the United States, we were struck by the stampede of prospective exporters and manufacturers begging to be led to China.  And not just blender manufacturers either – we had little old ladies knitting doilies looking to offshore to Guangzhou to boost margin.   While there’s no question that China offered a lot of manufacturers very attractive opportunities for cost reductions, we suspect that some portion of those who went tearing off to China with stars in their eyes looking for “money for nothing” probably wound up with more of the latter than the former.  The big attraction, of course, was the low cost of labor.

According to a report by Boston Consulting Group cited by Reforma, in 2002 China’s average daily manufacturing wage was USD0.80, far below Mexico’s comparatively lavish USD3.00 at the time.  Double-digit average annual GDP growth since then, however, has helped drive wages steadily upward in China, while manufacturing pay has remained relatively stable in Mexico over the same period.  As a result, a gap in labor costs of over 250% between Mexico and China just a few years ago is projected to drop to under 20% in 2010.  When factoring in 4:00 a.m. conference calls, frustrating communications and the cost and time of shipping, China may now be losing some of its former luster for manufacturers looking to offshore to serve the North American and South American markets.  Mexico would do well to keep a close eye on items such as electricity costs, targeted technical education and other industrial location decision factors in order to take maximum advantage of any opportunities created by China’s unprecedented development surge.

The good news is that for the moment, the worst appears to have passed.  While the economy is by no means charging back, it did register positive GDP growth in the third quarter, following four straight quarters of contraction.  The damage is done, however, and central bank Banco de Mexico is projecting overall GDP growth for 2009 at approximately -7.0%.  The effect on employment has been devastating, with manufacturing chamber Coparmex estimating that some 600,000 jobs were lost during the year.  Inflation was held relatively stable at approximately 4%, although this is projected to rise in 2010 presuming a rebound in internal markets.  Mexico’s currency has hit a volatile patch at year end.  The peso depreciated from about 13.2 to a high of 15.5 in March, before stabilizing at around 13.5 for most of the year.  The dollar suddenly dived against the peso in the last week of November, reaching as low as 12.3 before creeping back up to about 12.9 at the time of this report.

Economic analysts in local media seem to be trying to will the economy back to life, and some small gains are being registered, such as department store sales in the third quarter and new jobs in certain manufacturing sectors.  A stronger recovery, however, will have to overcome some formidable obstacles.  Facing a growing budget deficit, the Mexican government recently passed a 2010 economic package that includes a raft of tax increases on items such as income and retail sales.  This, taken together with proposed hikes in Mexico City on hotel occupancy and public transportation, won’t help domestic consumers loosen the purse strings.  Credit to consumers and businesses has been extremely tight this year, with no apparent trend toward loosening on the horizon.  Ultimately, however, the biggest factor in Mexico’s economy will be the pace of recovery in the United States.  With over 80% of the country’s exports going to the United States, consumption in Mexico’s northern neighbor will have a major impact on job creation and in turn the reactivation of the domestic market.

While the story of 2009 is undoubtedly the deep recession, some sectors in Mexico have done remarkably well, and are actually thriving despite current economic conditions.  One such sector is aerospace.  Mexico has become a world-class player in this industry over the past decade, drawing over US$32 billion in aerospace manufacturing investment since 1990.   The number of companies in aerospace manufacturing, maintenance and related support services in Mexico has grown from 61 to 194 over the past four years, and export sales are projected at US$3.4 billion for 2009.

While aviation itself overall slumped in 2009 along with the economy, one subsector has become a growth industry: Private air transport for executives.  This niche is set to buck the trend and post positive growth for the year, with sector leader Aerolineas Ejecutivas (ALE) projecting 12% growth for 2009.

Mexico’s energy industry has long been restricted exclusively to the state, but steps taken in recent years have allowed increasing opportunities for participation by the private sector.  Changes in public policy combined with the global surge in interest in alternative energy sources have made this sector a focus of investment in Mexico.  On the electricity side, major wind generation plants are in development or construction in the southern Isthmus of Tehuantepec region and along Mexico’s northern border with California.  Solar equipment manufacturing and power generation has received considerable attention as well.  Japanese manufacturer Kyocera opened up a second major plant in Tijuana this year to produce solar modules, and the state of Durango presented a proposal to construct a “solar cluster” industrial site to host both equipment manufacturers and solar electricity generation plants.  Biofuels are also drawing interest in Mexico, with research and development underway on fuels produced from materials such as jatropha, sugar cane, corn, palm oil and tallow, among others.

Another industry that has thrived in Mexico despite the recession is software development.  Anchored in the city of Guadalajara and surrounding state of Jalisco, Mexican software engineers both develop their own software and provide “nearshoring” code writing services to software companies in California and elsewhere.  Jalisco boasts over 200 information technology companies, and national IT organizations are projecting 11% growth for the sector in 2009 at a time when most other industries are facing contraction for the year.

For U.S. food and food ingredients exporters, Mexico continues to represent a market of interest.  The national farmers’ confederation (CNC) reported this year that Mexico’s dependency on imported food products is growing, particularly in corn and oilseed products. In 2008 Mexico imported 9.1 million tons of corn and 4.0 million tons of oil seeds.  Corn and oil seed imports are expected to increase by 10% in 2009 due to losses in domestic production caused by a drought earlier in the planting season.

On balance, Mexico heads into 2010 facing enormous challenges, but not without cards to play.  The drug wars continue to consume a significant share of public resources, but ultimately reactivation of internal and export markets will have to drive the recovery.  If the United States is able to accomplish even moderate economic recovery in the coming year, the resulting boost to Mexican manufacturing should provide an important push toward reverting 2009’s downward trend in employment and consumer spending.  And this, in turn, can only benefit trading partners seeking to export industrial On balance, Mexico heads into 2010 facing enormous challenges, but not without cards to play.  The drug wars continue to consume a significant share of public resources, but ultimately reactivation of internal and export markets will have to drive the recovery.  If the United States is able to accomplish even moderate economic recovery in the coming year, the resulting boost to Mexican manufacturing should provide an important push toward reverting 2009’s downward trend in employment and consumer spending.  And this, in turn, can only benefit trading partners seeking to export industrial technology and consumer goods to Mexico.

• Logistics:  Argentina-based logistics company Axis Logistica announced plans to build a new distribution center in Mexico in 2010, in anticipation of economic recovery.  The company entered the Mexican market in 2007 and has invested US$10 million since that time in construction and upgrades of its distribution infrastructure in the country.
• Aviation: Private air transport for executives is a growth industry in Mexico, with positive growth projected for 2009.  The sector is led by Aerolineas Ejecutivas (ALE), which is projecting 12% growth for the year.  The company invested approximately US$35 million in a new terminal at Monterrey’s international airport this year.
• Aerospace: Mexico’s aerospace industry continues to post impressive growth despite the worldwide economic slowdown.  The number of companies in aerospace manufacturing, maintenance and related support services in Mexico has grown from 61 to 194 over the past four years, with export sales projected at US$3.4 billion for 2009.
• Automotive: Ford Motor Company inaugurated a new engine manufacturing plant in the northern city of Chihuahua, in the state of the same name.  Ford invested a reported US$838 million in the new plant, which will produce diesel motors for pickup trucks.
• Laboratory: Coca-Cola de México launched operations at a new testing laboratory in Mexico City.  The US$8 million facility includes state-of-the-art technology and will be used to verify the safety of ingredients, materials and finished products.
• Solar power: The State of Durango announced it is preparing to develop a major industrial park to produce solar power equipment and generate solar electricity.  The complex, to begin construction in 2010, is planned to house 20 solar technology companies.  Durango reportedly recently signed a cooperation agreement with a German solar power research institute.
• Airports: Tourist resort developer Grupo Vidanta inaugurated a new international airport in the northwestern location of Puerto Peñasco.  Vidanta, which operates resorts in the area, invested US$40 million in the project, which was also supported by the Sonora state and federal governments.  In the future the developer seeks to construct a new highway linking Puerto Peñasco with the U.S. border.
• Processed foods:  Swiss processed foods giant Nestle announced plans for major investment in Mexico manufacturing operations for 2010.  The program includes a US$15 million plant in the south eastern state of Chiapas to produce Coffee-Mate, and a US$100 million expansion of the company’s coffee processing plant at Toluca, near Mexico City.
• Aerospace: Canadian aerospace manufacturer Bombardier initiated construction of a new plant – the company’s third – at the Queretaro Aerospace Park in the central state of Queretaro.  Bombardier has plans to invest US$250 million in the plant to produce fuselages, wings and electrical harnesses for Learjets.
• Retail: Grocery and general merchandize retailer Soriana announced 2010 investment plans to the tune of US$300 million for store upgrades and new store openings.  The company is looking to focus on growth once again following a period of reorganization in the wake of its buyout of 198 stores from former rival Gigante in 2007.  Soriana, with 470 stores, is Mexico’s second largest grocery chain after Wal-Mart.
• Metal tubing: Multinational metal products giant Luvata inaugurated a new production plant in the north eastern state of Nuevo Leon.  The US$40 million facility will produce copper tubes, coils and coolers for heating, cooling, air conditioning and refrigeration applications.  The complex includes its own water treatment plant.
• Automotive: Luxury automaker BMW announced plans to source US$2 billion worth of auto parts from Mexican manufacturers over the coming two years, in anticipation of a rebound in sales.  The increase in sourcing from Mexico is intended to hedge the cost of parts currently purchased in Euros.
• Solar power: Japanese energy technology manufacturer Sanyo Electric Co. inaugurated a new production plant in the north eastern industrial city of Monterrey.  The US$15 million plant will assemble high-efficiency solar modules for the North American market.

More to come

Mexico’s manufacturing sector will be pleased to welcome back into operation the Ford Motor Co. plant in Cuautitlán Izcalli, outside Mexico City, in 2010, local media are reporting.  The plant, shuttered since 2008, is currently being adapted to begin producing the Ford Fiesta automobile early next year.  In addition to helping skilled employment recover in the Cuautitlán industrial area, bringing the plant back on line will provide a much needed boost to some 20 autoparts suppliers located in the area.

While overall vehicle manufacturing continues to suffer worldwide, we have seen a number of instances in which Mexican manufacturing facilities have taken on additional production following plant closures in other countries.  While it’s not ideal for the industry, we won’t turn it down.

Read more about the Cuautitlán plant reopening here: http://www.eluniversal.com.mx/notas/631454.html